Marc Henrard - Multi-curve framework

LCH is proposing to changes the LCH Limited Rulebook. The details can be found at: https://www.lch.com/membership/ltd-membership/ltd-member-updates/lch-limited-rule-change-committee-10-january-2020 This post is a work of fiction, an extreme fiction. The official narrative is also a work of fiction, also an extreme fiction and consequently I feel allowed to write my own fiction about this very important topic. Reality is probably between the extremes of fiction. You can't have your cake and eat it too CCPs want fees related to risk management of large portfolios but at the same time want to get rid of the risk as soon as the risk is about to materialize. Default fund and margin haircut on the materialization of credit risk through default, default fund usage in case of bad management of their funds investment process, and more recently remove LIBOR risk as soon as there is a LIBOR discontinuation risk is about to materialize. This is this last point that interests us here. F

ISDA has recently published a consultation on fallback for EUR-LIBOR and EUR-EURIBOR . In the consultation questions, there is a question about the data to use for the computation of the spread historical median. The question refers to EONIA and pre-ESTR data. From 1 January 2022, EONIA will not be a EU BMR compliant benchmark. Such a non-compliant benchmark cannot be used for the " determination of the amount payable under a financial instrument or a financial contract by referencing an index or a combination of indices " (quote from EU BMR). It appears it would imply that contracts referencing a spread fallback computed from  EONIA rates would not be EU BMR compliant and forbidden in the European Union after 1 January 2022. I asked to ISDA if they obtained an explicit written indication from ECB, ESMA and/or national regulators that using EONIA figures in the fallback wording to LIBOR/EURIBOR-linked transactions is acceptable under EU BMR regulation after 1 January 20

I'm preparing my answer to the ISDA consultation on fallback for EUR-LIBOR and EUR-EURIBOR . One element that is missing in the proposed options is the fallback of EUR-LIBOR to EUR-EURIBOR. It is expected that EURIBOR will outlast LIBOR by several years. A natural, simple, requiring no change of term sheet, and with limited risk management impacts fallback is obviously to replace EUR-LIBOR by EUR-EURIBOR (plus a potential spread). Why would you not proposed one IBOR as a fallback option for another IBOR? If EUR-LIBOR fallback is done directly to ESTR and not to EUR-EURIBOR, we may at some stage see substantial movements in the basis spread between EUR-LIBOR and EUR-EURIBOR swaps. Those basis movements could be interpreted as a measure of the substandard nature of the proposed fallback. This could further reduce the incentive for users to sign the ISDA protocol, even for other currencies. They would see directly in the data, without needing any theory or model, to which extend the p